Zad Holding Equities Qatar Consumer Thursday, 11 May 2017

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1 Ma y-16 Jun-16 Jul-1 6 Aug -16 Sep -16 Oct-1 6 Nov-16 Dec-16 Jan-17 Feb-17 Ma r-17 Apr-1 7 Ma y-17 Zad Holding Equities Qatar Consumer AbdelRahman Wahba Mubasher International Research@MubasherTrade.com A grains giant reaping the benefits of growth Opening Position Price Target: QAR121 Expected Total Return: +52% Following on with our Hidden Gems Uncovered series, we are glad to present today a new stock pick from Qatar Exchange. Our pick is one of the leading food companies in Qatar, with a strong position in the market. It has consistently generated a double-digit revenue growth to achieve a 3-year CAGR of 17% to QAR1.24bn in 2016, induced by a sustainable growth in local demand due to population growth. In addition, it has managed to reward its shareholders with generous dividend payouts, thanks to its stable cash flows. We see value in the company using both DCF and multiples, but most of all we like the stock given its stable dividends and high yield. Background: Zad Holding Company (ZHCD.QE) was incorporated in July 1969 and listed on Qatar Exchange (QE) in May Currently, Zad is managed by Al Thani family. Zad s main activities include: the import of wheat and the production of different kinds of flour, pasta, and bakery products. Further, the group earns income from trading certain types of grains and related commodities. In addition to the above, the group is engaged in other activities, including contracting, establishing and managing industrial projects, real estate management, selling and rental of heavy equipment, manufacturing and supply of ready mix concrete and asphalt, rock blasting, crushing services, and transport services. A diversified conglomerate, shielded against sector-specific risks: Zad is well shielded against sector-specific risk, with diverse business activities. Over , Zad managed to diversify away from the consumer sector, which represented 80% of total revenues in 2013 to reach 67% of revenues in Meanwhile, contracting and real estate management expanded to 21% of revenues (vs. 10% in 2013), and logistics services generated 13% of revenues (vs. 10% in 2013). We view the diversity of business lines as a point in favor of Zad s business sustainability and growth. Massive government spending to support growth: The Qatari government is set to spend a whopping QAR261bn over on infrastructure development. The focus will be on transport, water, electricity and sewage besides a number of road expansion projects. This should boost growth in the contracting and logistics sectors during the next five years. Key risks: Although the company has a welldiversified business model and enjoys sustainable revenue growth, key risks include: (1) volatility of investment income, (2) competition arising from international contractors, and (3) targeting mainly a small-sized market in terms of population (c.2.6mn) and number of cities. We are opening position in the stock with a PT of QAR121 (ETR: +52%): Using the discounted cash flow (DCF) model, we set our price target (PT) at QAR121/share with an expected total return (ETR) of +52%. Hence, we are opening position in the stock, supported by a dividend yield of c.6%. Stock Performance & Details ZHCD (QAR) vs. DSM Rebased Vol. (RHS) ZHCD DSM Rebased Source: Zad Holding, MubasherTrade Research estimates 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Sto ck D etails Last price (QAR) W High (QAR) W Low (QAR) M -ADVT (QARmn) 0.04 % Chg: M om % Chg: YoY % Chg: YTD M ubasher Ticker ZHCD.QE Bloomberg Ticker ZHCD QD C apital D etails No. of Shares (mn) 21.5 M kt Cap (QARmn) 1,706.4 M kt. Cap (USDmn) Free Float (%) 55.20% QAR mn 2014a 2015a 2016a 2017e 2018e 2019e Revenue 895 1,119 1,236 1,319 1,394 1,455 EBITDA Net Income Revenue Growth (%) 16.2% 25.0% 10.4% 6.7% 5.7% 4.4% EBITDA Growth (%) 24.6% 66.0% 28.6% -10.9% 5.7% 4.4% Net Income Growth (%) 45.2% -11.8% 4.5% -5.0% 4.8% 4.0% EBITDA Margin (%) 14.4% 19.0% 22.2% 18.6% 18.6% 18.6% Net Margin (%) 20.3% 14.3% 13.6% 12.1% 12.0% 11.9% Net Debt (Cash) EPS (QAR) BVPS (QAR) DPS (QAR) PER (x) 9.4x 10.6x 10.2x 10.7x 10.2x 9.8x PBV (x) 1.3x 1.3x 1.2x 1.2x 1.1x 1.1x Dividend Yield (%) 5.1% 5.1% 5.7% 6.0% 6.3% 6.5% Page 1

2 Corporate Profile Zad Holding Company (ZHCD.QE) is a shareholding company listed on the Qatar Exchange (QE). The group consists of various subsidiaries having diversified business interests. Zad s authorized capital amounts to QAR215.45mn distributed over 21.55mn ordinary shares with a par value of QR 10. Share capital is divided into two parts: (1) 13.08mn issued and fully-paid shares listed on Qatar Exchange and (2) 8.46mn unlisted shares, representing QAR 84.64mn of capital. The unlisted shares were issued for the purpose of acquiring Al Meeda Projects Company through a share swap transaction, following which Al Meeda business was fully consolidated in Zad Holding. According to Qatar Exchange, Zad s free float is 11.90mn shares, representing 55% of total paid-in capital, while the foreign ownership limit is 3.27mn shares, representing 25% of listed shares and 15% of total shares. The actual number of shares owned by foreigners and other GCC investors stood at 113,384 shares, representing less than 1% of listed shares, leaving room of another 24% for foreign investors. Board of directors Sh. Talal Al Thani Tareq Mohammad Sh. Nawwaf Al Thani Sh. Nasser Al Thani Chairman Vice Chairman CEO Listed vs. unlisted shares Ownership limits Sh. Mansour Al Thani Sh. Jabr Al Thani Sh. Thamer Al Thani Saud El Manee Abdulla Ali Al Ansari Ali Eskandar Al Ansari Kaltham Sultan Al Hagry Source: Qatar Exchange Source: Qatar Exchange Source: Zad Holding Page 2

3 Investment Thesis A well-diversified business, offering high-quality products: Zad generates revenues through three core segments: (1) trading and manufacturing of consumer products, (2) contracting and real estate management, and (3) logistics services. Trading and manufacturing of consumer products represents c.67% of the company s revenues. Demand for consumer products is inelastic and almost stable due to its necessity. Over the past three years ( ), the company s revenues grew at a CAGR of 17%, driven by a 10% growth in the trading and manufacturing business, 49% increase in contracting and real estate management, and 28% increase in logistics services. In 2015, revenues witnessed an extraordinary growth rate of 25% vs. 16% in 2014; this growth has been driven by extraordinary growth in contracting and logistics segments which grew up by 91% and 56%, respectively. Revenue growth normalized in 2016 at 10%. A fully-integrated value chain of wheat, producing highquality products: Enjoying a perfect value chain, products offered by Zad include (1) flour and its related products, (2) different kinds of bread, croissant, muffins and buns, (3) Chakki Atta, wheat derivatives like harees, jareesh and different shapes of decorative pasta, and (4) frozen meat products and vegetable products. In addition to the above, the group is engaged in trading and marketing activities through its subsidiary Arzak Marketing (AMC). In line with the group s policy to supply high-quality products, Zad s subsidiary Qatar Flour Mills (QFM), which manufactures flour and its related Double-digit revenue growth products is certified by SGS standards of quality, ISO 9001:2008, ISO 22000:2005, and also has an HACCP certification. Also, Umm Said Bakery (Qbake) is the first bakery in Qatar that was awarded the Certification for Quality Management System ISO 9001:2008, UKAS and Food Safety Management System ISO 22000:2005. Major Player in the local market, supported by the government: Most nations in the Middle East rely on other countries to grow wheat to feed their people. Zad is responsible for most of the wheat purchases for the Qatari government, as it has the authority to issue tenders for such purchases, giving it a strong position in the market and a unique bargaining power, enhancing its subsidiaries with a strong competitive advantage. Improved operating margins reflecting the operational efficiency: Gross profit margin expanded from just 26% in 2013 to 31% in 2016,also the EBITDA margin moved from 13% in 2013 to 22% in 2016, reflecting operational efficiency and a fruitful business transformation strategy. High dividend payer: Zad is a stable dividend payer, with an average payout ratio of 55% over the past four years. Between 2013 and 2015, Zad paid an average cash dividend of QAR3.8/share, implying an average dividend yield of c.4.8%. In 2016, dividends jumped to QAR4.5/share implying an annual yield of 5.0%. With healthy cash flows, future dividend yield is expected to stabilize. Operational efficiency High dividend payer Source: Zad Financials EBITDA margin expanded significantly Source: Zad financials Source: Zad Financials Source: Zad Financials Page 3

4 Forecast Assumptions Growth to continue in all business segments: Over , Zad Holding s revenues grew by a CAGR of 17% to QAR1.24bn, driven by strong growth from the three business segments. We conservatively forecast total revenues to grow by a CAGR of 4.7% over e to reach QAR1.55bn by 2021 with mild growth in the three business segments. Population and high per-capita GDP to drive up food consumption in Qatar: Demand for consumer products is considered sustainable as the segment is believed to be defensive against any economic challenges. Demand for consumer goods is mainly driven by the country s population growth and per-capita income. According to Trading Economics, consumer spending in Qatar is projected to grow at a 4-year CAGR ( ) of 9.3%. Meanwhile, per-capita GDP of c.usd60,732 in 2016 is projected to grow at a 4-year CAGR of 6%, and population is projected to grow at a CAGR of 1.5% over the same period, according to IMF estimates. We believe that demand for consumables will be driven by population growth due to the strong historical correlation and high consistency between both. Hence, we forecasted revenues from trading and manufacturing of consumer products -except the portion of subsidized product- to grow at a 5-year CAGR ( ) of 4%, This rate was derived from the forecasted population growth, in addition to the inflation rate to compensate for price growth. We assumed that subsidized product will decline at a 5- year CAGR ( ) of 3%, due to the government trend to cut subsidies. Overall, the trading & manufacturing segment is projected to grow at a 5-year CAGR of 2.9% over the same period. GDP growth and infrastructure spending key catalysts for contracting business: Contracting and real estate management segment is expected to outweigh the other two segments in the future. Contracting should gain momentum starting 2017 in preparation for FIFA World Cup 2022.The government has set a massive budget for infrastructure development, such as water supply, electricity and sewage besides a number of road expansion projects and other civil construction that Zad has the capabilities to execute through its subsidiary Meeda Projects Company. Meanwhile, the large number of tourist arrivals expected by 2022 to attend FIFA World Cup 2022 and Qatar s national vision for 2030 that targets 7mn tourists should also trigger demand for property rental. Higher economic activity in anticipation for FIFA World Cup 2022 would also give boost to the country s logistics segment. Hence, we forecast revenues for contracting and real estate management and logistics segments to grow at 5-year CAGRs of 7.9%, in line with the forecasted nominal GDP growth rates according to IMF estimates. Investment income causes earnings volatility: Zad s net income is significantly affected by investment-related earnings, particularly realized gains from the sale of investments. Despite a steady growth in EBITDA margin over the past four years, net profit margin (NPM) fluctuated to a great extent, affected by the variation in investment income from one year to another. In 2016, investment income represented only 4% of net profits vs. 39% in Hence, over our forecasted horizon we conservatively assumed no investment income in order to assess only the operational performance of the company. Expanding margins, driven by strong operational performance: Over the past four years, Zad was able to maintain stable growth in operating margins; gross profit margin (GPM) jumped from 26% in 2013 to 31% in 2016 and similarly EBITDA margin increased from 13% to 22%, reflecting the operational efficiency. In our forecasts, we assumed GPM to average 28% over our forecast horizon. Estimating SG&A-to-sales ratio at an average of 10.8%, we arrived at an average EBITDA margin of 18% over our forecast period. Capex to be limited to maintenance: With no announced any major expansionary plan for the company, we assumed maintenance capex at 7% of revenues, slightly higher than 2016 rate which was 6%. Consistent dividend payout policy: Zad has paid a cash dividend of QAR4 a share based on 2014 and 2015 earnings and increased it to QAR4.5 a share in This represents a 3-year average payout ratio of 53%. Given the sustainability of operating cash flows and minimal cash flows required for investing activities, we believe that this payout ratio would grow in the future. Page 4

5 Valuation We used both DCF and multiples valuation models to value Zad Holding: DCF FV QAR121/share: We have built a two-stage forecasting model (a high-growth period through 2021, followed by a stable-growth terminal period). We discounted free cash flows to the firm (FCFF) at a weighted average cost of capital (WACC) of 8.2%, resulting from a cost of equity (COE) of 8.32% and an after-tax cost of debt of 4.1%. We derived COE as follows: QAR risk-free rate of 2.5% (US risk-free rate of 2.45%, inflation differential between Qatar vs. USA of 0.06%). Zad s total equity risk premium of 5.8% (US ERP of 6.05%, adjusted beta of 0.865, and CRP of 0.57%). Terminal growth rate (TGR): 1%. Multiples FV QAR147/share: We conducted multiple valuation for estimating Zad Holding s fair value but we didn t include it in our PT. We believe that sum-of-the-parts (SOTP) will be the best method to compare a Zad s value to its peers, given the diverse nature of its businesses and the significant investment portfolio it holds. We divided Zad s activities into three segments based on its business strategy, as it has been reported in the company s financial statements: (1) Trading and manufacturing of consumer products, (2) contracting, real estate and logistics, and (3) investments and managed services. We used a P/E multiple valuation method for the first two segments, while we valued the investments segment at book value (BV). 1. P/E: By applying regional median TTM P/E of 12.2x for the trading, manufacturing and distribution segment, we reached an equity value of QAR2.1bn (QAR98/share). Further, we applied a P/E of 7.7x for the contracting, real estate and logistics segment, reaching an equity value of QAR470mn for the segment (QAR22/share). 2. BV: Using the book value for the Investments segment, it yielded an equity value of QAR594.3mn (QAR27.6/share). PT QAR121/share (+52%); position opened: Using DCF valuation, we reached a PT of QAR121/share, implying an upside potential of 52%. At our PT, ZAD would be valued at 2017e P/E of 16.3x (excluding investment income) and only 13.9x if we exclude marketable securities and availablefor-sale investments for which we did not forecast any income. We expect the stock to yield 6% based on an expected dividend payout of 64%. Sensitivity of PT to TGR and COE Cost of Equity (COE) Terminal Growth Rate (TGR) % 0.5% 1.0% 1.5% 2.0% 6.3% % % % % Source: MubasherTrade Research estimates Page 5

6 Valuation (Cont. d) Economic Profit Analysis (Operational) 2013a 2014a 2015a 2016a 2017e 2018e 2019e 2020e 2021e Terminal ROIC 35.3% 1.6% 25.7% 36.9% 26.3% 26.1% 25.5% 24.8% 24.3% 23.4% WACC 7.7% 7.8% 7.9% 8.0% 8.1% 8.2% Terminal growth rate 1.0% Source: MubasherTrade Research estimates 2013a 2014a 2015a 2016a 2017e 2018e 2019e 2020e 2021e Terminal CAGR CAGR Revenues QAR mn ,119 1,236 1,319 1,394 1,455 1,504 1, % 4.7% Growth rate 16% 16% 25% 10% 7% 6% 4% 3% 3% Trading and manufacturing of consumers QAR mn % 2.9% Growth rate 14% 12% 5% 5% 3% 3% 2% 2% % of revenues 80% 79% 70% 67% 66% 64% 63% 62% 61% Contracting and real estate management QAR mn % 7.9% Growth rate 31% 91% 33% 9% 11% 7% 6% 6% % of revenues 10% 11% 17% 21% 21% 22% 23% 23% 24% Logistics services QAR mn % 7.9% Growth rate 22% 56% 10% 9% 11% 7% 6% 6% % of revenues 10% 10% 13% 13% 13% 14% 14% 14% 15% Gross profit QAR mn % 2.6% GPM% 26% 25% 28% 31% 28% 28% 28% 28% 28% SG&A % 14% 12% 10% 10% 11% 11% 11% 11% 11% EBITDA QAR mn % 1.0% EBITDA % 13% 14% 19% 22% 18% 18% 18% 18% 18% Growth rate 25% 66% 29% (11%) 6% 4% 3% 3% Depreciation expense QAR mn Effective tax rate 4% 2% 7% 7% 7% 7% 7% 7% 7% NOPLAT QAR mn % -0.4% Growth rate (83%) 1105% 36% (14%) 5% 3% 2% 2% 1% Net Profit QAR mn % 1.9% NPM% 16% 20% 14% 14% 12% 12% 12% 12% 12% Growth rate 45% (12%) 5% (5%) 5% 4% 3% 3% Investment in working capital QAR mn 27 (95) (43) 39 (81) (9) (10) (9) (8) Capex QAR mn (29) (342) (61) (75) (92) (98) (102) (105) (109) FCFF/TV ,486 Present value FCFF ,727 DCF Enterprise Value 2,221 Net Debt/(Cash) 8 Minority Interest 0 Marketable securities 390 DCF Equity Value 2,602 Number of Shares Outstanding 21.5 FV (QAR) 121 Page 6

7 Valuation (Cont. d) Trading and manufacturing of consumer products EBITDA Margin PER EV/EBITDA Net Debt/EBITDA Dividend Yield PBV Country Company name Current Current Current UAE Foodco Holding PJSC n/a 13.0% n/a n/a 10.0x 7.3x n/a n/a 10.5x n/a 12.2x n/a n/a x n/a -2.5x n/a n/a 5.8% 3.8% n/a n/a 0.9x 0.9x n/a n/a 1.3x OMAN A'Saffa Foods SAOG 31.5% 27.0% n/a n/a 14.4x 17.2x n/a 9.7x 15.5x 10.0x 12.0x n/a n/a 10.1x 0.2x 0.1x n/a n/a 2.3% 2.1% n/a n/a 2.8x 2.8x n/a n/a 1.8x MOROCCO Lesieur Cristal 7.9% 8.6% 7.8% 8.2% 14.3x 16.3x 21.2x 18.2x 20.1x 8.4x 8.3x 10.9x 9.9x 10.5x n/a n/a -0.9x -1.2x 0.0% 0.0% 3.5% 3.6% 1.8x 2.0x n/a n/a 2.4x SAUDI ARABIA Saudia Dairy & Foodstuff Co 15.5% 12.6% 15.4% 21.0% 18.1x 27.8x 16.1x 14.0x 13.7x 12.4x 17.0x 10.6x 9.0x 9.3x -0.5x -0.3x -0.6x -1.1x n/a 2.9% 3.4% 3.8% 3.4x 4.1x 4.2x 3.4x 3.3x KUWAIT Mezzan Holding Co KSCC 11.2% 10.7% 12.0% 11.4% n/a 17.7x 16.0x 14.8x n/a n/a 18.0x 13.8x 13.5x 14.9x 1.4x 1.5x n/a 1.1x n/a 2.3% 3.1% 11.0% n/a 3.5x 0.3x 0.4x n/a OMAN Oman Flour Mills Co SAOG 12.4% 14.0% n/a n/a 14.2x 9.7x n/a n/a 11.4x 10.3x 6.6x n/a n/a 8.3x -0.1x -0.4x n/a n/a 3.9% 5.4% n/a n/a 1.8x 1.3x n/a n/a 2.1x EGYPT Middle & West Delta Flour Mill 4.6% 4.8% n/a n/a 5.5x 4.0x n/a n/a 5.4x 2.6x 1.0x n/a n/a 2.0x 0.6x -0.8x n/a n/a n/a 11.5% n/a n/a 1.8x 2.4x n/a n/a 2.5x BAHRAIN Bahrain Flour Mills Co -176% % n/a n/a 15.8x n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 5.1% n/a n/a n/a 0.5x n/a n/a n/a n/a EGYPT North Cairo Flour Mills 4.6% 2.2% n/a n/a 5.6x 6.4x n/a n/a 9.5x 3.1x 2.7x n/a n/a 6.5x -0.8x -2.4x n/a n/a 11.5% 8.3% n/a n/a 1.7x 1.1x n/a n/a 1.6x QATAR Widam Food Co -75.1% -70.0% n/a n/a 19.9x 13.8x n/a n/a 12.2x n/a n/a n/a n/a -3.3x n/a n/a n/a n/a 4.1% 5.1% n/a n/a 4.4x 3.6x n/a n/a 3.7x UAE Agthia Group PJSC 14.5% 17.0% 16.2% 15.8% 19.3x 19.9x 15.4x 15.0x 14.6x 14.8x 14.2x 11.1x 10.4x 10.2x -0.7x -0.4x -0.2x -0.2x 1.6% 1.6% 2.1% 2.3% 2.7x 3.0x 2.2x 2.0x 2.2x MENA Peers' Average -14.9% -11.2% 12.9% 14.1% 13.7x 14.0x 17.2x 14.3x 12.5x 8.8x 10.2x 11.6x 10.7x -3.7x 0.0x -0.6x -0.5x -0.4x 4.3% 4.3% 3.1% 5.2% 2.2x 2.5x 2.2x 1.9x 2.3x MENA Peers' Median 9.5% 10.7% 13.7% 13.6% 14.3x 15.0x 16.0x 14.8x 12.2x 10.0x 12.0x 11.0x 10.2x 8.8x -0.1x -0.4x -0.6x -0.7x 4.0% 3.3% 3.3% 3.7% 1.8x 2.6x 2.2x 2.0x 2.2x Contracting and Real Estate management EBITDA Margin PER EV/EBITDA Net Debt/EBITDA Dividend Yield PBV Country Company name Current Current Current BAHRAIN Nass Corp BSC 11.6% 3.2% n/a 6.5% 9.0x 9.5x n/a 8.4x 9.5x 2.6x 3.1x n/a 1.8x 2.2x -1.6x -5.8x n/a n/a 8.7% 4.2% n/a n/a 0.7x 0.5x n/a n/a 0.5x KUWAIT Mushrif Trading & Contracting -6.8% 4.7% n/a n/a n/a 20.0x n/a n/a n/a 20.3x 19.9x n/a n/a n/a n/a 11.1x n/a n/a 0.0% 0.0% n/a n/a 0.5x 0.5x n/a n/a n/a KUWAIT Kuwait Co for Process Plant Co 8.1% 10.8% n/a n/a 8.0x 13.9x n/a n/a n/a 5.6x 9.2x n/a n/a 8.9x -0.8x 2.3x n/a n/a 2.1% 2.8% n/a n/a 0.8x 0.9x n/a n/a n/a EGYPT Elsaeed Contracting & Real Est 23.8% 16.6% 16.0% 15.4% 10.0x 6.1x 5.7x 6.2x 6.0x 6.8x 3.8x 3.8x 4.2x 4.0x -0.7x -0.6x -0.9x -1.3x n/a n/a n/a n/a 1.2x 0.7x 0.6x 0.6x n/a KUWAIT Al Mazaya Holding Co KSCP 44.9% 16.5% 31.5% 24.3% 9.5x 6.8x 5.8x 8.5x n/a 13.7x 14.8x 8.4x 11.0x 13.1x 4.7x 6.9x 6.2x 7.1x 4.8% 6.9% 5.5% 5.5% 0.8x 0.6x 0.6x 0.6x 620.4x MENA Peers' Average 16.3% 10.4% 23.7% 15.4% 9.1x 11.3x 5.7x 7.7x 7.7x 9.8x 10.1x 6.1x 5.7x 7.1x 0.4x 2.8x 2.7x 2.9x 3.9% 3.5% 5.5% 5.5% 0.8x 0.6x 0.6x 0.6x 310.5x MENA Peers' Median 11.6% 10.8% 23.7% 15.4% 9.3x 9.5x 5.7x 8.4x 7.7x 6.8x 9.2x 6.1x 4.2x 6.4x -0.7x 2.3x 2.7x 2.9x 3.5% 3.5% 5.5% 5.5% 0.8x 0.6x 0.6x 0.6x 310.5x SOTP Valuation Contracting and Real Estate Trading & manufacturing of consumer products Investment & managed services* Total Segment Earnings 2016 (QARmn) Median PER Equity Value (QARmn) Number of shares (mn) Value per share (QAR) Source: Bloomberg, MubasherTrade Research estimates x 12.2x 470 2, , Page 7

8 Financial Summary Balance Sheet (QARmn) Per-Share Data FY End: December 2013a 2014a 2015a 2016a 2017e 2018e 2019e 2013a 2014a 2015a 2016a 2017e 2018e 2019e Current Assets Price Cash & Cash Equivalent # Shares (WA,in mn) Accounts & Notes Receivable EPS Other Current Assets DPS Total Current Assets ,079 1,168 1,164 1,171 1,174 BVPS Fixed Assets (net) Other Non-Current Assets 1, Valuation Indicators Net Intangibles a 2014a 2015a 2016a 2017e 2018e 2019e Total Assets 2,008 2,011 2,091 2,144 2,164 2,199 2,230 PER (x) 12.0x 10.0x 11.4x 11.5x 10.7x 10.2x 9.8x Liabilities & Equity PBV (x) 1.1x 1.4x 1.4x 1.4x 1.2x 1.1x 1.1x Short-Term Debt EV/Sales (x) 2.2x 2.3x 1.7x 1.6x 1.4x 1.3x 1.2x Current Portion of LT Debt EV/EBITDA 17.1x 16.3x 8.9x 7.2x 7.5x 7.0x 6.6x Accounts Payable Dividend Payout Ratio 60.3% 47.4% 53.8% 57.8% 64.2% 64.2% 64.2% Other Current Liabilities Dividend Yield 5.0% 4.8% 4.7% 5.0% 6.0% 6.3% 6.5% Total Current Liabilities Long-Term Debt Profitability & Growth Ratios Other Non-Current Liabilities a 2014a 2015a 2016a 2017e 2018e 2019e Total Liabilities Minority Interest Revenue Growth 15.6% 16.2% 25.0% 10.4% 6.7% 5.7% 4.4% Total Equity 1,341 1,293 1,344 1,419 1,477 1,538 1,600 EBITDA Growth -25.4% 24.6% 66.0% 28.6% -10.9% 5.7% 4.4% Total Liabilities & Equity 2,008 2,011 2,091 2,144 2,164 2,199 2,230 Net Income Growth 11.0% 45.1% -11.9% 4.4% -5.0% 4.8% 4.0% EBITDA Margin 13.1% 14.1% 18.7% 21.7% 18.2% 18.2% 18.2% Income Statement (QARmn) Net Margin 16.2% 20.3% 14.3% 13.6% 12.1% 12.0% 11.9% 2013a 2014a 2015a 2016a 2017e 2018e 2019e ROAE 9.4% 13.8% 12.2% 12.1% 11.0% 11.1% 11.1% Total Revenue ,119 1,236 1,319 1,394 1,455 ROAA 6.2% 9.0% 7.8% 7.9% 7.4% 7.7% 7.8% COGS ,004 1,048 GP Liquidity & Solvency Multiples Other operating (exp.)/ Inc a 2014a 2015a 2016a 2017e 2018e 2019e EBITDA D&A, Others (30) (114) (95) (89) (63) (67) (72) Net Debt/(Cash) Net finance exp., taxes (13) (18) (19) (18) Net Debt/Equity 16.7% 19.0% 2.1% 0.6% 5.6% 4.3% 2.9% NP Before XO & MI Net debt to EBITDA 2.2x 2.0x 0.1x 0.0x 0.3x 0.3x 0.2x XO & Minority Interest Debt to Assets 14.0% 16.0% 14.8% 14.6% 12.4% 10.2% 8.0% Net Income Current ratio 1.1x 1.3x 1.9x 2.1x 2.8x 2.7x 2.6x Cash Flow Statement (QARmn) Consensus Estimates 2013a 2014a 2015a 2016a 2017e 2018e 2019e 2017e 2018e 2019e Revenues NA NA NA Cash from Operating MubasherTrade Research vs. Consensus NA NA NA Cash from Investing (198) (95) (94) (98) Net Income NA NA NA Cash from Financing (151) (191) (128) (89) (151) (157) (161) MubasherTrade Research vs. Consensus NA NA NA Net Change in Cash (20) (120) (28) (25) Fwd PER (x), Last Price 10.7x 10.2x 9.8x Fwd PER (x), Price Target 16.3x 15.6x 15.0x Capex (29) (342) (61) (75) (92) (98) (102) Fwd DY (%), Last price 6.0% 6.3% 6.5% Source: Company data, MubasherTrade Research estimates a = Actual; e = Estimate Share price at 10-May-17 Page 8

9 Disclosure Appendix Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer s intrinsic value on a per-share basis. In doing so, we follow both topdown and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation. COUNTRY MACRO RATINGS: We analyze the four main sectors of a country s macroeconomics, then we assign,, and star for low risk, moderate risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (30% weight), (b) Monetary Sector (10% weight), (c) Fiscal Sector (25% weight), (d) External Sector (15% weight), and (e) Credit Rating and Outlook (20%). STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the Neutral borderline (below which is Underweight ) as 20% of RRR for Country Macro Rating, 40% of RRR for Country Macro Rating, and 60% of RRR for Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year. SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating Overweight, Neutral, or Underweight for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country. SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows DCF valuation model(s), (2) relative valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to scan the market for other analysts value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security s expected total return (including both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return RRR as calculated using the Capital Asset Pricing Model CAPM and adjusted for the Risk Rating we attach to each security. Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow DCF ), asset-based valuation models (e.g. Net Asset Value NAV ), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), or a combination of them. In case we do not have our own valuation model, we use a weighted average of market consensus price targets andratings. We review the investment ratings periodically orasthe situation necessitates. SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security s average annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates. Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities. Investment Rating If Total Return is Buy (B) Hold (H) Sell (S) Not Rated (NR) Not Covered (NC) Low (1) Moderate (2) High (3) Higher than RRR Higher than RRR Higher than RRR Between RRR and 20% of RRR Lower than 20% of RRR Risk Rating Between RRR and 40% of RRR Lower than 40% of RRR Between RRR and 60% of RRR Lower than 60% of RRR We have decided not to publish a rating on the stock due to certain circumstances related to the company (i.e. special situations). We do not currently cover this stock or we are restricted from coverage for regulatory reasons.

10 Analyst Certification I (we), AbdelRahman Sobhy Wahba, author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any ofmy (our) close relatives hold ortrade into the subject securities. Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report. Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) ( MFS ) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents. Copyright Copyright 2017, Mubasher Financial Services BSC (MFS), ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of MFS. MubasherTrade is a trademark of Mubasher Financial Services BSC. Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated bythe Central Bank of Bahrain. Website: Research@MubasherTrade.com

11 Sales & Research Contact Details INSTITUTIONAL SALES RETAIL SALES RESEARCH MENA Bahrain UAE Research Team Call Center: Call Center: Egypt Egypt Institutions-Egy@Mubasher.net Egypt@MubasherTrade.com Call Center: /